經(jīng)濟學(xué) 外文文獻(xiàn) The Incentives for Tax Planning

Electroniccopyavailableat:/abstract=1416422Electroniccopyavailableat:/abstract=1416422TheIncentivesforTaxPlanningChristopherS.Armstrong

carms@JenniferL.Blouin

blouin@TheWhartonSchool

UniversityofPennsylvania

1300Steinberg-DietrichHall

Philadelphia,PA19104-6365DavidF.Larcker

LarckerDavid@StanfordUniversity

GraduateSchoolofBusiness

RockCenterforCorporateGovernance

Stanford,CA94305-5015Draft:March8,2011ThispaperhasbenefittedfromhelpfulcommentsprovidedbyMichelleHanlon(editor),AlanJagolinzer,ananonymousreferee,andtheworkshopparticipantsatBostonCollege,DukeUniversity,TempleUniversity,TexasA&M,theUniversityofMissouri,theUniversityofOregon,andtheUniversityofWashington.WealsogratefullyacknowledgetheresearchsupportprovidedbyJimFeeney.ChristopherArmstrongisgratefulforfinancialsupportfromtheDorindaandMarkWinkelmanDistinguishedScholarAward.TheIncentivesforTaxPlanningAbstract: WeuseaproprietarydatasetwithdetailedexecutivecompensationinformationtoexaminetherelationshipbetweentheincentivesofthetaxdirectorandGAAPandcasheffectivetaxrates,thebook-taxgap,andmeasuresoftaxaggressiveness.WefindthattheincentivecompensationofthetaxdirectorexhibitsastrongnegativerelationshipwiththeGAAPeffectivetaxrate,butlittlerelationshipwiththeothertaxattributes.Weinterprettheseresultsasindicatingthattaxdirectorsareprovidedwithincentivestoreducetheleveloftaxexpensereportedinthefinancialstatements.Keywords:taxdirectorincentives;equityincentives;effectivetaxrate;book-taxdifferenceJELClassification:H25,M41,M522IntroductionThispaperinvestigatesthetypeoftaxplanningincludedintaxdirectors’compensationcontracts.Usingdetaileddataontaxdirectorincentivecompensation,weexaminewhethertheincentivesprovidedtotaxdirectorsareassociatedwithlowereffectivetaxratesand/orawiderbook-taxgap.Wealsoexaminewhethertaxdirectorincentivesaremorestronglylinkedtomeasuresoftheimpactoftaxesoncashflows(i.e.,casheffectivetaxratesandtaxableincome)orearnings(i.e.,GAAPeffectivetaxratesandpre-taxbookincome).Finally,weinvestigatewhethertaxdirectorincentivesareassociatedwithproxiesforaggressivetaxplanning.Ourstudycomplementsandextendstherecentliteraturethatlinkstaxplanningwithtopexecutiveincentivecompensation(e.g.,DesaiandDharmapala,2006;RegoandWilson,2010)andexecutive/corporateculture(e.g.,Franketal.,2009;Dyrengetal.,2010).Thisliteraturesuggeststhatafirm’sculture,representingthesharedbeliefswithinthefirmregardingtheoptimalcourseofaction,canleadtoendemicaggressivenessinallofafirm’sbusinessdecisions,includingthetaxfunction(e.g.,Cronqvistetal.,2007).Althoughthesestudiesshowthatboththeincentivesoftopmanagementandcorporateculturehaveasignificantimpactoneffectivetaxrates,itisnotclearwhethertopmanagementdirectlyengagesintaxplanningorwhetherthedocumentedtaxeffectsareabyproductoftheinvesting,financing,andoperatingdecisionsmadewithinthefirm.Forexample,anobservedrelationshipbetweentopmanagement’sincentivesandmeasuresoftaxplanningmaybeanindirectoutcomeoftheinvestmentdecisionratherthanfromdeliberatetaxplanning.Tounderstandthelinkbetweenperformancemeasuresandobservedtaxattributes,itisnecessarytoexplicitlyconsidertheincentivecompensationofthetaxdirector,whoistheexecutivechargedwithoverseeingthefirm’staxfunction.However,analternativescenarioisthatalltaxplanningdecisionsareThisliteraturesuggeststhatafirm’sculture,representingthesharedbeliefswithinthefirmregardingtheoptimalcourseofaction,canleadtoendemicaggressivenessinallofafirm’sbusinessdecisions,includingthetaxfunction(e.g.,Cronqvistetal.,2007).#PanelA:IndustryCompositionofSampleIndustryProprietarySampleCompustatNumberFrequencyNumberFrequency1.MiningandConstruction231.98%1,2632.75%2.Food827.06%8591.87%3.Textiles,Printing,andPublishing746.37%1,5683.42%4.Chemicals806.88%9552.08%5.Pharmaceuticals574.91%2,7195.93%6.ExtractiveIndustries363.10%1,6863.67%7.DurableManufacturers27723.84%12,51827.28%8.Computers282.41%2,3385.09%9.Transportation433.70%2,9076.33%10.Utilities726.20%1,7973.92%11.Retail13711.79%3,5957.83%12.FinancialInstitutions17414.97%6,80614.83%13.InsuranceandRealEstate595.08%2,0964.57%14.Services20.17%3,8628.42%15.Other181.55%9202.00%Total1,162100%45,889100.00%ThistablepresentstheindustryclassificationoftheproprietarysampleandtheCompustatdatabaseoverthe2002to2006period.Thenumberandfrequencyofthe1,162samplefirm-yearobservationsandtheCompustatdatabasefrom2002to2006arereportedaccordingtotheirindustryclassificationfollowingBarthetal.(1998).PanelB:ProportionofSampleTaxExpenseandCashPaidforTaxesRatioofProprietarySampletoCompustatRatioofProprietarySampleinS&P500toTotalS&P500TaxCashPaid#ofTaxCashPaidAssetsExpenseforTaxesFirmsAssetsExpenseforTaxes200231.07%36.05%34.61%50.80%64.78%64.67%62.96%200330.32%32.55%32.09%50.80%64.64%61.35%62.55%200429.03%28.35%32.94%51.20%64.19%58.61%60.72%200528.84%28.93%36.27%50.60%62.51%57.43%58.26%200628.09%28.45%33.86%49.20%60.83%55.26%56.28%Columns(1)to(3)ofthistablepresenttheratiooftotalassets(TA),totaltaxexpense(TXT),andtotalcashpaidfortaxes(TXPD)fortheproprietarysampletothetotalCompustatpopulationoffirmswithdataavailable,respectively.Columns(4)to(7)presentthepercentageoftheS&P500firmsintheproprietarysample,andtheratiooftotalassets(TA),totaltaxexpense(TXT),andtotalcashpaidfortaxes(TXPD)fortheS&P500firmsintheproprietarysampletoallS&P500firms.DescriptiveStatisticsMeanMedianStandardDeviation25thPercentile75thPercentileCompensationVariablesTotalCEOCompensation13,662,0009,839,09013,722,3774,670,01017,645,995TotalTaxDirectorCompensation787,727558,714695,740340,909974,043TotalGCCompensation2,114,0371,355,1932,200,675758,7262,642,015TotalCFOCompensation1,178,060888,292980,002550,3431,445,396CEOCompensationMix0.8480.9020.1610.8230.939TaxDirectorCompensationMix0.5930.6290.2050.4830.747GCCompensationMix0.7180.7620.1830.6440.848CFOCompensationMix0.6820.7220.1810.6040.811CEOBonusMix0.1330.1050.1200.0560.182TaxDirectorBonusMix0.1380.1280.0900.0780.189GCBonusMix0.1380.1190.1030.0690.188CFOBonusMix0.1390.1270.0980.0750.190TaxVariablesBook-TaxGap274672,153-41358ScaledBook-TaxGap0.0500.0160.3400.0000.043GAAPETR0.2970.3130.1480.2460.358CashETR0.2870.2330.2620.1230.338CashETR(w/oOptionBenefit)0.2830.2300.2620.1180.333CashETR(3Year)0.3310.2670.2740.1790.356Pre-TaxBookIncome1,8386833,7301871,791TaxableIncome(LessOptionBenefit)1,2704463,178961,387TaxableIncome1,3974702,9841041,419CashFlowFromOperations2,2837964,1262712,140TaxBenefitofStockOptions44.500.00374.270.0011.90DTAX0.1020.0100.478-0.0150.075SHELTER0.9410.9810.1140.9460.994FinancialVariablesMarket-to-BookRatio3.382.423.391.623.79MarketCapitalization23,5559,17342,3653,06021,329Revenue17,8178,21131,8173,18317,854ReturnonAssets0.0520.0490.0660.0160.090PriorYear’sReturn0.0930.1280.329-0.0210.257Std.ROA0.1590.1280.1440.0650.203PriorYear’sVolatility0.0080.0040.0140.0020.008Leverage0.2020.1840.1320.1040.285AdditionalControlVariablesChangeinGoodwill0.0270.0010.0720.0000.014NewInvestment0.0380.0200.0650.0010.055ForeignAssets0.2680.1660.3130.0000.458GeographicComplexity0.7300.8530.2980.4621.000IndustryComplexity0.6570.7730.3680.3141.000AuditFees7,1544,14011,2891,9638,127TaxFees0.1590.0670.2210.0130.222ProportionTaxFees0.1830.1370.1640.0500.271Thistablepresentsdescriptivestatisticsforthesampleof985firm-yearobservationsforwhichwehaveallofthevariablesinthetable.AllvariablesareasdefinedinAppendixA.DeterminantsoftheGAAPandCashEfTectiveTaxRatesGAAPETRCashETRCompensationCompensationCompensationCompensationLevelMixLevelMix(1)(2)(3)(4)(5)(6)(7)(8)Intercept0.411***0.461***0.205***0.213***0.2600.354**0.234***0.204***(3.09)(4.26)(2.90)(3.17)(1.54)(2.33)(2.76)(2.65)CEOIncentives-0.0010.010-0.014-0.107(-0.09)(0.21)(-1.55)(-1.59)TaxDirectorIncentives-0.028***-0.024***-0.075**-0.064*-0.023-0.015-0.040-0.010(-2.70)(-2.78)(-2.20)(-1.95)(-1.36)(-1.11)(-0.62)(-0.21)GeneralCounselIncentives0.001-0.0080.0110.016(0.12)(-0.17)(1.12)(0.23)CFOIncentives0.0080.0190.0220.118(0.87)(0.42)(1.43)(1.62)ReturnonAssets0.343***0.347***0.371***0.374***0.264**0.272**0.267**0.289**(3.67)(3.72)(3.95)(4.05)(2.21)(2.26)(2.23)(2.42)Std.Dev.ROA-0.089**-0.09**-0.091**-0.092**-0.118***-0.113***-0.116***-0.115***(-2.53)(-2.52)(-2.56)(-2.57)(-3.14)(-3.03)(-3.07)(-3.07)Log(MarketCap)0.0080.0090.0050.0050.0030.004-0.001-0.001(1.20)(1.44)(0.81)(0.89)(0.37)(0.50)(-0.12)(-0.08)Leverage-0.018-0.017-0.021-0.021-0.022-0.019-0.024-0.021(-0.34)(-0.32)(-0.41)(-0.41)(-0.32)(-0.28)(-0.34)(-0.30)ChangeinGoodwill-0.027-0.026-0.025-0.0250.196*0.199*0.1900.201*(-0.49)(-0.47)(-0.45)(-0.45)(1.70)(1.73)(1.64)(1.74)NewInvestment0.0740.0740.0810.082-0.362***-0.362***-0.354***-0.361***(0.82)(0.83)(0.90)(0.93)(-3.24)(-3.23)(-3.14)(-3.26)ForeignAssets0.037*0.036*0.037*0.037*0.0180.0190.0170.019(1.83)(1.85)(1.86)(1.86)(0.76)(0.83)(0.71)(0.81)GeographicComplexity0.095***0.093***0.095***0.094***0.0440.0410.0400.042(3.68)(3.58)(3.64)(3.63)(1.34)(1.22)(1.23)(1.26)IndustryComplexity-0.005-0.0040.0000.0000.0060.0080.0090.010(-0.30)(-0.23)(0.00)(0.03)(0.30)(0.37)(0.43)(0.48)ProportionTaxFees-0.042-0.044-0.052*-0.053*-0.044-0.050-0.046-0.055(-1.34)(-1.41)(-1.66)(-1.67)(-1.09)(-1.21)(-1.14)(-1.36)TaxFees0.0120.0140.0220.0220.0620.0640.0630.069(0.27)(0.31)(0.49)(0.49)(0.95)(0.98)(0.97)(1.06)Nobs985985985985985985985985AdjustedR212.7%12.6%12.3%12.3%9.4%8.9%9.2%8.7%Thistablepresentstheestimatesofequation(1)wherethedependentvariableiseithertheG.AAPETRortheCashETR.GA^PETRisthefinancialeffectivetaxratefortheyeardefinedastotalincometaxexpensescaledbypre-taxincome(CompustatTXT/PI).CashETRisthecasheffectivetaxratefortheyeardefinedasthesumoftotalincometaxespaidandthetaxbenefitofstockoptionsscaledbypre-taxincome((TXPD+(TXBCO+TXBCOF))/PI).IncentivesfortheCEO,taxdirector,generalcounsel,andCFOaremeasuredaseitherCompensationLevel(i.e.,thenaturallogarithmoftotalannualcompensation)orCompensationMix(i.e.,theratioofvariablecompensationtototalcompensation).TheremainingvariablesareasdefinedinAppendixA.Yearandindustryindicatorsareincludedbutunreported.t-statisticscalculatedusingrobuststandarderrors(basedontwo-wayclusteringbyfirmandyear)arereportedinparenthesesbelowthecoefficientestimates.*,**,and***denotestatisticalsignificance(twosided)atthe10%,5%,and1%levels,respectively.DeterminantsoftheBook-TaxGapandComponentsCompensationLevelCompensationMixBTGPBITIDiffBTGPBITIDiffIntercept0.183*-0.110*-0.14**0.2400.100-0.117***-0.091**0.470(1.78)(-1.74)(-2.00)(0.63)(1.39)(-2.86)(-2.19)(0.49)CEOIncentives-0.001-0.004-0.0030.020-0.045-0.033**-0.0130.970(-0.17)(-1.36)(-1.34)(0.90)(-0.94)(-1.98)(-0.62)(0.32)TaxDirectorIncentives-0.007-0.0060.0023.340-0.033-0.0010.0273.910(-1.08)(-1.46)(0.45)(0.07)(-1.31)(-0.06)(1.62)(0.05)GeneralCounselIncentives0.0030.0030.0010.3900.055*0.013-0.0183.700(0.85)(1.11)(0.44)(0.53)(1.81)(0.81)(-1.04)(0.05)CFOIncentives-0.0040.0050.0040.1000.0080.033*0.0190.730(-0.74)(1.42)(1.08)(0.76)(0.24)(1.91)(1.11)(0.39)OperatingCashFlow0.155*0.836***0.591***17.2500.153*0.839***0.593***17.450(1.85)(11.99)(11.22)(0.00)(1.80)(12.37)(11.16)(0.00)Std.Dev.ROA0.0200.012-0.0020.3700.0190.012-0.0010.350(0.56)(0.42)(-0.11)(0.54)(0.54)(0.43)(-0.05)(0.56)Log(MarketCap)0.0020.014***0.007***3.9100.0010.012***0.007***3.540(0.70)(3.96)(3.05)(0.05)(0.19)(4.23)(3.04)(0.06)Leverage-0.014-0.016-0.037*0.840-0.016-0.015-0.035*0.790(-0.36)(-0.64)(-1.77)(0.36)(-0.44)(-0.62)(-1.69)(0.37)ChangeinGoodwill0.065-0.042-0.067*0.6500.063-0.044-0.068*0.620(1.21)(-1.18)(-1.72)(0.42)(1.15)(-1.22)(-1.73)(0.43)NewInvestment-0.0620.0910.089*0.000-0.0610.0890.088*0.000(-0.90)(1.51)(1.81)(0.97)(-0.88)(1.46)(1.76)(0.98)ForeignAssets0.0000.0200.0110.890-0.0020.0190.0110.800(0.00)(1.56)(0.93)(0.35)(-0.12)(1.63)(1.00)(0.37)GeographicComplexity0.0240.036***0.0161.7700.0240.036**0.0171.710(1.10)(2.73)(0.96)(0.18)(1.13)(2.49)(0.96)(0.19)IndustryComplexity-0.068*-0.040*0.0106.550-0.069*-0.041*0.0106.600(-1.96)(-1.89)(0.44)(0.01)(-1.91)(-1.83)(0.38)(0.01)ProportionTaxFees0.0000.031**0.026*0.1700.0020.031**0.025*0.240(0.02)(2.03)(1.84)(0.68)(0.08)(2.18)(1.73)(0.62)TaxFees0.016-0.004-0.0030.0300.016-0.004-0.0030.010(1.12)(-0.50)(-0.36)(0.86)(1.16)(-0.46)(-0.37)(0.92)Nobs985985985985985985AdjustedR27.6%60.8%50.1%8.0%60.8%50.3%Thistablepresentstheestimatesofequation(2)wherethedependentvariableinthefirstcolumnistheBook-TaxGap(BTG).ThesecondandthirdcolumnspresentresultswhentheBook-TaxGapisdisaggregatedintoitstwocomponents,Pre-TaxBookIncome(PBI)andTaxableIncome(TI),andtheequationsarejointlyestimatedusingSeeminglyUnrelatedRegression.Thefourthcolumn,Biff,presentstheresultsofachi-squaretestofthedifferencebetweentheestimatedcoefficientsinthePBIandTImodels.IncentivesfortheCEO,taxdirector,generalcounsel,andCFOaremeasuredaseitherthenaturallogarithmoftotalcompensationorcompensationmix.TheremainingvariablesareasdefinedinAppendixA.Yearandindustryindicatorsareincludedbutunreported.t-statisticscalculatedusingrobuststandarderrors(basedontwo-wayclusteringbyfirmandyear)arereportedinparenthesesbelowthecoefficientestimates.*,**,and***denotestatisticalsignificance(two-sided)atthe10%,5%,and1%levels,respectively.MeasuresofTaxAggressiveness(DTAXandShelter)DTAXShelterIntercept0.4350.5790.523***0.542***(0.74)(0.84)(4.53)(5.68)CEOIncentives-0.0130.001(-0.38)(0.20)TaxDirectorIncentives-0.079-0.0720.0030.005(-0.83)(-1.03)(0.37)(0.72)GeneralCounselIncentives-0.0480.005(-1.08)(1.04)CFOIncentives0.079-0.002(0.82)(-0.32)ReturnonAssets-0.0060.0180.183*0.184*(-0.01)(0.04)(1.87)(1.88)Std.Dev.ROA-0.317-0.383-0.221-0.216(-0.38)(-0.46)(-1.64)(-1.64)Log(MarketCap)0.0080.0080.033***0.033***(0.23)(0.21)(6.08)(6.32)Leverage-0.047-0.031-0.073*-0.074*(-0.18)(-0.12)(-1.79)(-1.83)ChangeinGoodwill1.483**1.489**0.0250.025(2.23)(2.25)(0.54)(0.53)NewInvestment-1.119*-1.136*-0.038-0.035(-1.86)(-1.89)(-0.58)(-0.53)ForeignAssets0.0320.0310.0190.019(0.23)(0.22)(1.07)(1.08)GeographicComplexity0.0060.003-0.060**-0.060**(0.04)(0.02)(-2.38)(-2.43)IndustryComplexity-0.019-0.020-0.006-0.005(-0.15)(-0.15)(-0.43)(-0.39)ProportionTaxFees0.586**0.570**-0.051-0.051(2.35)(2.36)(-1.57)(-1.57)TaxFees-0.270-0.2740.0640.065(-0.92)(-0.94)(1.59)(1.62)Nobs985985985985AdjustedR210.4%10.1%41.9%41.9%Thistablepresentstheestimatesofequations(3)and(4)wherethedependentvariableiseitherDTA^(i.e.,excesspermanentdifferencesandETRdifferentialsasdefinedinFranketal.,2009andmodifiedwiththeinclusionofestimatedforeignassets)orShelter(i.e.,Wilson's(2009)measureoftheprobabilitythatthefirmengagesinataxshelter).IncentivesfortheCEO,taxdirector,generalcounsel,andCFOaremeasuredastheleveloftotalcompensation.TheremainingvariablesareasdefinedinAppendixA.Yearandindustryindicatorsareincludedbutunreported.t-statisticscalculatedusingrobuststandarderrors(basedontwo-wayclusteringbyfirmandyear)arereportedinparenthesesbelowthecoefficientestimates.*,**,and***denotestatisticalsignificance(two-sided)atthe10%,5%,and1%levels,respectively.ReverseRegression-CompensationLevelCEOTaxGCCFOIntercept12.617***10.015***10.85***11.041***(26.57)(28.74)(24.79)(38.60)ReturnonAssets2.291***1.829***2.104***2.041***(4.04)(4.53)(4.10)(5.21)Std.Dev.ROA-1771***0.3170.955-0.374(-2.66)(0.60)(1.39)(-0.65)Log(MarketCap)0.381***0.350***0.294***0.287***(10.99)(12.55)(7.73)(12.55)Leverage-0.1800.018-0.0730.066(-0.65)(0.08)(-0.26)(0.33)ChangeinGoodwill0.027-0.0450.0290.069(0.06)(-0.17)(0.07)(0.24)NewInvestment0.5330.2310.5570.261(0.92)(0.60)(1.10)(0.70)ForeignAssets-0.0460.0500.015-0.005(-0.33)(0.47)(0.13)(-0.05)GeographicComplexity-0.197-0.056-0.263-0.212*(-1.10)(-0.39)(-1.43)(-1.76)IndustryComplexity0.184-0.0480.1340.120(1.63)(-0.56)(1.22)(1.54)ProportionTaxFees-0.3750.125-0.239-0.315*(-1.59)(0.64)(-1.00)(-1.77)TaxFees0.778**0.0930.551*0.36*(2.32)(0.36)(1.70)(1.65)GAAPETR-0.138-0.363***-0.140-0.087(-0.54)(-2.63)(-0.70)(-0.64)CashETR0.0440.1230.262*0.155(0.25)(0.98)(1.71)(1.33)GA^ETRvs.CashETR(F-stat)0.0084.90**3.27*0.64p-value0.9270.0270.0710.426Nobs985985985985AdjustedR236.1%44.9%31.7%43.1%ThistablepresentstheestimatesofregressingCEO,taxdirector,generalcounsel,andCFOincentivecompensationoneconomicdeterminantsofincentivecompensationandtheGA^PETRandCashETR.Thedependentvariablesaremeasuredasthenaturallogarithmoftheleveloftotalannualcompensation.TheremainingvariablesareasdefinedinAppendixA.Yearandindustryindicatorsareincludedbutunreported.^-statisticscalculatedusingrobuststandarderrors(basedontwo-wayclusteringbyfirmandyear)arereportedinparenthesesbelowthecoefficientestimates.TheF-statisticandassociatedp-valuefromthetestoftheequalityoftheestimatedcoefficientsonGA^PETRandCashETRarereported.*,**and***denotestatisticalsignificance(two-sided)atthe10%,5%,and1%levels,respectively.IS*XpAIl3dS3J'spA3J%\pu^'〇/0g'%0!Vs(pspxs-OMi)soireoijTuSis^oiisimssiousppws\sjredpsipvsmsip (gpirej)NI3Hsvjpws(ypn^d)}JX3dWDUTs^uaisjjipnmpsmpn^wsmisipinsssjdsuuinjooxpusAsspirexpxis3i|X(pspxs-OMi)sn^A-dps^poss^sippiresjredp3i|〇^msipnssMpqm丄gwssmsipuxsousjsjjxpsipjo1S31^jojoxisiMS-itsinsssjdsuuinjooqijijpwsqiinojsqx(pspxs-OA^)sn^A-d§nxpnods9xioosippn^sunijjosjredpsipvsmsipnssMpqm丄girexpamsipmsonsjsjjipmns-5[irejsipjooiisimsuoxooji^^lusssjdsuuinjoopjiqipirep